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Nigeria Q4'21 Trade Report - Trade remains in the trenches

Recently, the National Bureau of Statistics (NBS) released its merchandise trade report. According to the NBS, data for 2020 and 2021 were revised based on a methodological review, updated data from NBS sources, and the use of the Nigerian Autonomous Foreign Exchange (NAFEX) rate as the underlying exchange rate for international transactions. While we acknowledge the apex bank’s adoption of the NAFEX rate as the official exchange rate, we note that in reality, companies import at a blended rate (sourced from both the official and parallel market).

After comparing data under the old and revised version, we observed that while exports were relatively flat, there was a material decline in imports – 9M’20 (-36.2% y/y) and 9M’21 (-32.1% y/y). Thus, the trade balance increased significantly in both years (9M’20: +97%, 9M’21: +80%). To put in proper context, the recent review has understated Nigeria’s import position and overstated her trade balance. The impact on exports may be muted because the official rate is traditionally used in converting oil proceeds. Eventually, a higher trade balance would translate to a statistical improvement in the current account balance.

Import surges to record high despite review

Despite the review, imports surged to a record high of ₦5.9 trillion in Q4’21 (FY’21: ₦20.8 trillion). Premium Motor Spirit (PMS) was responsible for nearly one-quarter of total import value, sitting as the major import component. On the export leg, crude oil remained the dominant contributor accounting for 74% of total exports. Buoyant oil prices supported a 6% q/q growth in crude exports in Q4’21 despite lower oil production volumes. In Q4, oil production fell to 1.50 million barrels per day (mb/d) from 1.57 mb/d in the previous quarter. Altogether, total trade flows surged to ₦11.7 trillion in Q4’21 (+11.8% y/y) and ₦39.7 trillion in FY’21 (+57% y/y). With imports contributing 52% to total trade mix under the new formula, Nigeria retains its position as an import-dependent nation.

Ukraine-Russia tensions to worsen trade balance
Although China remains our top trade partner by imports, Ukraine sits as the 7th on the trade list. According to the United Nations trade database, Ukraine exported Iron & Steel, Cereals, Sugar, Fertilizers, etc. to Nigeria in the past. Due to the war waged against Ukraine by Vladmir Putin (the Russian President), the Ukrainian government has announced a food export ban to stabilize its market. This in addition to economic sanctions on Russia, a major producer of wheat, could have a negative passthrough to food prices. While Russia banned the export of key commodities to 48 countries till the end of the year, Nigeria’s exclusion from the list does not shield it from the consequences of the ban. While the crisis-induced surge in oil prices should provide succour to Nigeria’s export earnings, crude theft and low oil production has aggravated Nigeria’s woes. This position has been worsened by a domestic energy crisis, as the country is faced with replacing its off-spec PMS products at a time of high and rising prices. While Nigeria’s oil production (excluding condensates) improved to 1.40 mb/d in January (Dec’21: 1.19 mb/d), oil production is reported to have fallen to 1.26 mb/d in February. This invariably means the oil sector would remain in a recession in Q1’22. Thus, the ongoing geopolitical tensions could slow growth, expand Nigeria’s import bill, and incite new rounds of inflationary pressure.

Overall, our outlook for trade remains dim as geopolitics, sustained dependence on imports, and subsequent weakness in the Naira poses significant headwinds in 2022. We believe the completion of the Dangote Refinery would be essential in trimming Nigeria’s import bill on petroleum products.